Arkansas Supreme Court: Out-of-State Debt Buyers Must be Licensed

The Arkansas Supreme Court late last week ruled that an out-of-state debt buyer that “retains a licensed Arkansas lawyer to collect on the delinquent accounts and file lawsuits on its behalf in Arkansas” meets the definition of “collection agency” in the state and must be properly licensed as such.

The high court issued its opinion in response to a request from a district court in a case that saw a consumer suing a debt buyer for not being properly licensed.

The case, Simpson v. Calvary, was filed in 2013 after a law firm working on Cavalry’s behalf won a default judgment against Simpson over a past due $1,078 credit card account. Simpson argued that Cavalry violated the FDCPA and Arkansas FDCPA by assigning a debt for collection without being licensed to do so in the state.

Arkansas law does require a debt collection agency to obtain a license to collect or solicit accounts. No exemptions for out-of state agencies exist. But Cavalry argued that it does not meet the definition of a “collection agency” because it assigned the debt to a licensed Arkansas law firm for collection rather than collecting itself.

In its opinion, the Arkansas Supreme Court disagreed with this characterization and noted that the defense that the ARM firm was not “directly” collecting the debt lacks merit. “Cavalry did not ‘assign’ the debt to a law firm but ‘retained’ (as framed in the certified question by the Eastern District) a law firm to act on its behalf in collecting the debt, including the filing of a lawsuit,” wrote Justice Cliff Hoofman.

Cavalry also noted that the Arkansas State Board of Collection Agencies had previously weighed-in on the question and issued a clarifying statement in August 2012 that read:

“…the Arkansas State Board of Collection Agencies recognizes as exempt from collection agency licensure in Arkansas any entity that purchases or receives an assignment of ownership of a debt that is in default at the time of assignment provided that the debt buyer: 1) does not attempt to collect debts directly either for itself or others; 2) undertakes collection efforts solely through third-party collection agencies or law firms; 3) maintains no place of business in Arkansas.”

But the Supreme Court said that while the agency’s interpretation of the statute is highly persuasive, it read the law as unambiguous and could not read it any other way.

So the justices answered both questions from the district judge in the affirmative and said that an out-of-state debt buyer must get licensed in the state if they are retaining firms to collect on its behalf.